Online sales taxes would be a dangerous expansion of state taxing power

It’s as if Washington can’t stand success.

No sooner does Congress do something great like passing a tax reform bill that is already paying dividends for millions than members begin scouting around for some way to muck it all up.

{mosads}The whole point of tax reform was to eliminate barriers to economic growth and put more money into the pockets of hardworking Americans. Why on earth would we then turn right around and have the government stick its hand even deeper into our pockets by establishing what amounts to a national sales tax system?

After years of fighting off proposals to impose online sales taxes, some lawmakers are now endorsing the idea, and President Trump has said he “feels strongly” that state and local sales taxes should be allowed on purchases made over the internet, even when retailers do not have a physical presence in a state, defying longstanding practice and Supreme Court precedent.

Not only would this be more expensive for customers, it would be a massive expansion of state taxing power and a complex and costly new mandate on businesses.

A national online sales-tax system would place a burden on online retailers far beyond any with which brick-and-mortar businesses have to contend. A downtown store has to compute and pay a mere handful of state and local sales taxes. Online retailers would have to calculate and apply sales taxes nationwide — for every state, county and city that assesses one. Thousands of such jurisdictions impose varying retail sales taxes. Any business with an online presence, no matter how small, would have to find their way through this morass.

And getting rid of the requirement that a business maintain a physical presence in a jurisdiction before it is subject to taxation would open the door for states to expand their tax collections in other ways beyond state lines. We could see aggressive extra-territorial enforcement of business and individual income tax laws, and from there it’s a short hop to the imposition of regulatory requirements on out-of-state entities. 

This is a wildly unpopular idea. A September 2017 poll by Rasmussen Reports found overwhelming opposition to an internet sales tax, with 66 percent opposed and only 21 percent in favor.

The fact is, we don’t need a whole new federal regime to collect sales taxes from online retailers. The one we have now is working pretty well.

More than 90 cents of every dollar spent on retail still winds up in the cash registers of brick-and-mortar stores. 

Of the admittedly growing amount that goes toward online sales, a sizable portion is already taxed, for the obvious reason that so much online exchange is conducted by large businesses such as Amazon and Walmart that have an extensive physical presence and are thus already subject to state and local taxation.

The Government Accountability Office estimates that potential gains in state revenue amount to between one-half and 1 percent of what states currently take in. The GAO also said that 80 percent of potential revenue is already collectible under current law. The problem is not that companies are dodging tax collectors. It’s that states and localities are not enforcing their existing laws.

For the 45 states with a sales tax, getting their own houses in order should come before asking Congress to hand over more power to force out-of-state businesses to collect taxes for them.

In the wake of a successful effort at tax reform that is growing the economy and benefiting tens of millions of Americans, we urge Congress and the Trump administration to keep their eye on the ball — cut taxes, control spending and eliminate regulatory barriers that get in the way of a growing economy. Don’t devise new ways to burden ordinary Americans and stifle the very economic turnaround you’ve help create.

Brent Gardner is chief government affairs officer at Americans for Prosperity.